Concurrences Revue des droits de la concurrence Th he E EU U C - - PDF document

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Concurrences

Revue des droits de la concurrence

Th he E EU U C Comm mi is ss si io

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na ar ry y a ab bu us se es s: : A A s st te ep p f forw wa ar rd d

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rt tu un ni it ty? ? Tr re en nd ds s R Concurrences N° 2-2009 – pp. 9-39

Fr ra an nc ce es sc co

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OS SA AT TI I

Economist, Partner, Brussels

F Fl lo

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Competition Law Partner, Paris Bar

H Hen nd dr ri ik k B BO

OU UR RG GE EO OI IS S

Senior Counsel Competition, Regulation and Government Relations, General Electric Group, Brussels

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Competition & Regulatory Lawyer, British Airways, London

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Head of Antitrust Europe, Michelin Group, Clermont-Ferrand

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Competition Law Partner, Brussels

A As ss si im ma ak ki is s P P. . K KO

OM MN NI IN NO OS S

Senior associate, Brussels Visiting lecturer, IREA, Université P. Cézanne Aix-Marseille III, University College London

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ff fr re ey y D D. . O OL

LI IV VE ER R

Partner, Washington D.C.

P Ph hi il li ip pp pe e C CH

HO ON NÉ É

Chief economist, Autorité de la concurrence, Paris

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IA AN NO OS S

Faculty of Laws, University College London Emile Noel Fellow, New York University

SLIDE 2 Concurrences N° 2-2009 l Trends l The EU Commission’s Guidance on exclusionary abuses... 27

• 1. The European Commission is to be commended for issuing its

recently released Communication, “Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings”, and more generally for its efforts to provide guidance to the business community with respect to its enforcement objectives. From a U.S. perspective, however, the Commission’s Communication is disappointing on a number of levels, as it demonstrates a preoccupation with unilateral conduct that is likely to have procompetitive benefits, fails to provide meaningful safe harbors for businesses, and ignores the difficulties inherent in crafting appropriate remedies in such cases.

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2. . On its surface, the Commission’s recently released Communication, “Guidance on the Commission’s Enforcement Priorities in Applying Article 82 of the EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings,” appears to demonstrate the degree of convergence that has

• ccurred between EU competition law and U.S. antitrust law

in recent years. The main themes of the Commission’s Communication echo principles basic to U.S. antitrust

• enforcement. The Commission’s statements that its emphasis

will be on “safeguarding the competitive process” in the internal market and that the goal is “to protect an effective competitive process and not simply [to protect] competitors”52 are familiar refrains to the ears of U.S. practitioners. The test

• f ensuring that companies holding a dominant position do not

exclude competitors “by other means than competing on the merits” of the products or services they provide53 is consistent with language found in at least some U.S. court decisions.54 This test implies that the Commission recognizes the distinction between lawful “exclusion” of competitors by

• ffering superior products at lower prices and unlawful

exclusion by conduct of a type that is unlikely to benefit consumers.55 Similarly, most U.S. practitioners are comfortable with the concept that “[c]ompetition is a dynamic process and an assessment of the competitive constraints on an undertaking cannot be based solely on the existing market situation.”56 These are all welcome indications that the Commission intends to apply Article 82 so as to protect competition as a whole in a dynamic, evolving economy, and not simply to protect individual companies injured by more innovative, efficient or aggressive competitors. 3 3. . This impression of convergence may be misleading,

• however. When analyzed more closely, a number of details

reveal that, in important ways, EU competition law applicable to unilateral conduct, at least as the Commission proposes to apply it, continues to differ from U.S. antitrust law in certain fundamental ways. Unfortunately for businesses, these differences translate into an increased risk of enforcement with respect to practices that may have procompetitive benefits and greater uncertainty as to the conduct that a dominant firm may

• pursue. This is most evident in the Communication’s selection
• f types of conduct for consideration, its unduly confident

treatment of complex subjects as to which there (rightly) remains a great deal of uncertainty, the lack of emphasis on clear rules or safe harbors, and the absence of consideration with respect to remedy.

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4. . From a U.S. perspective, the Commission’s selection of specific types of conduct for detailed analysis in its Communication is disappointing. In the United States, the clear trend in recent decades has been towards narrowing substantially the likelihood of liability for unilateral conduct that might plausibly have procompetitive justifications. Two recent Supreme Court decisions have continued this trend, limiting severely the circumstances in which a monopolist might be found liable for a refusal to deal57 or a price squeeze.58 In contrast, it is no coincidence that two of the small number

• f cases finding a monopolist liable for unilateral conduct in

the past decade involved, at least in part, deliberate deception – conduct with respect to which there is rarely a legitimate

* Before returning to private practice in November 2007, Mr. Oliver was the Assistant Director responsible for the Anticompetitive Practices Division at the U.S. Federal Trade Commission. 52 Communication from the Commission, “Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings”, C(2009) 864 final, avail- able at http://ec.europa.eu/competition/antitrust/art82/guidance_en.pdf (here- inafter, “Communication”), ¶ 6. 53 Id. 54 See, e.g., Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605 n.32 (1985) (exclusionary conduct encompasses behavior that “either does not further competition on the merits or does so in an unnecessarily restrictive way.”) (quoting 3 Phillip Areeda & Donald F. Turner, Antitrust Law ¶ 626b at 78 (1978)). 55 See United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966) (distin- guishing unlawful monopolization from lawful acquisition of monopoly power “as a consequence of a superior product, business acumen, or histori- cal accident”). 56 Communication ¶ 16. 57 V erizon Communications Inc. v. Law Offices of Curtis V . Trinko, LLP, 540 U.S. 398 (2004). 58 Pacific Bell Telephone Co. v. linkLine Communications, Inc., 555 U.S. ___, slip op. (February 25, 2009).

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PE ER RS SP PE EC CT TI IV VE E

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LI IV VE ER R* Competition Law Partner, Washington D.C.

The EU Commission’s Guidance on exclusionary abuses: A step forward or a missed opportunity?

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justification.59 U.S. enforcement agencies have followed this trend, and have focused enforcement efforts on unilateral conduct of a type that is unlikely to involve a legitimate business justification, such as deception and misuse of governmental process.60 5 5. . The Commission’s Communication, by contrast, selects for detailed discussion solely conduct of a type that usually has procompetitive benefits. Aggressive pricing, discounts and rebates by definition benefit customers in the short term, and are likely to have net long-term anticompetitive effects only in very rare circumstances. Tying, bundling, exclusive dealing and refusals to deal likewise are usually procompetitive on

• balance. It is hoped that the Commission’s selection of these

topics for detailed discussion in its Communication is not an indication of its intended enforcement priorities.

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6. . The section of the Communication entitled Specific Forms of Abuse addresses a number of complex topics with a surprising degree of certainty. Bundling, for example, is a practice that may have consumer benefits, and economists have disagreed as to how to determine whether it causes anticompetitive harm. Analysis of multi-product rebates requires perhaps even more care, as such rebates offer short-term benefits to customers and theoretical long-term harm is only rarely established. Indeed, a few years ago, the U.S. Department of Justice and Federal Trade Commission recommended that the Supreme Court decline to hear 3M v. Lepage’s on the ground that the agencies could not articulate a single test for analyzing bundled

• discounts. The agencies stated, “although the business

community and consumers would benefit from clear, objective guidance on the application of Section 2 to bundled rebates […] it would be preferable to allow the case law and economic analysis to develop further.”61 In its recent report entitled “Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act,” the Department of Justice summarized various views regarding bundled discounts, and provided some guidance as to its views without adopting a particular method of analysis. 7. . The Commission’s Communication reflects none of this uncertainty surrounding the appropriate treatment of bundled

• discounts. While the Communication’s language

(“Enforcement action may however be warranted if […]”) is sufficiently vague to permit some degree of flexibility, the Communication nevertheless adopts a tone that fails to reflect the full degree of uncertainty surrounding such practices, which may result in businesses refraining from pursuing potentially procompetitive conduct. Hopefully, the Commission will remain open to consideration of varied approaches to this complex topic.

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8. . Although practitioners welcome the Communication’s stated purpose of providing “greater clarity and predictability” with respect to the application of Article 82 to unilateral conduct, the Communication falls short of providing the desired

• guidance. In the United States, there has been a growing

recognition of the importance of clear rules with respect to antitrust enforcement. This is especially true with respect to unilateral conduct, as many competitor complaints involve practices that can be beneficial to consumers and difficult to distinguish from aggressive competition on the merits. In its recent decision in linkLine, the U.S. Supreme Court reminded lower courts, “we have repeatedly emphasized the importance

• f clear rules in antitrust law.”62 The Court resisted calls to

apply the antitrust laws to a price squeeze; “[p]erhaps most troubling, firms that seek to avoid price-squeeze liability will have no safe harbor for their pricing practices.”63 In its earlier decision in Trinko, the Supreme Court noted the particular risk

• f false condemnations with respect to unilateral conduct.64 In

a similar vein, the Department of Justice summarized the views of multiple participants in the joint DOJ-FTC Section 2 Hearings, “[t]here also was consensus regarding the need for sound, clear, objective, effective, and administrable rules enabling businesses to conform their behavior to the law and affording them a degree of certainty in their planning.”65 For these reasons, in its Section 2 Report, the Department of Justice announced a series of safe harbors intended to inform businesses, including those with monopoly power, of the specific circumstances within which they may pursue certain conduct without risk of DOJ prosecution. 9 9. . In its Communication, the Commission also outlined circumstances in which companies with dominant positions are likely to be able to pursue specific conduct without inviting a Commission investigation. In many instances, however, the Commission removed much of the comfort that a safe harbor would provide by specifically holding open the possibility that, in some circumstances, the Commission might nevertheless investigate a particular practice.

59 United States v. Microsoft Corp., 293 F.3d 34, 76-77 (D.C. Cir. 2001) (deceiv- ing developers of Java-based applications into believing that applications developed using Microsoft’s Java development tools would be compatible with rivals’ software); Conwood Co. v. U.S. Tobacco Co., 290 F.3d 768 (6th

• Cir. 2002) (making misleading statements to dealers about rivals’ products);

see also Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007) (pos- sible liability for allegedly deceiving members of a standards organization with respect to the licensing terms of a relevant patent). 60 See, e.g., Susan A. Creighton, D. Bruce Hoffman, Thomas G. Krattenmaker and Ernest A. Nagata, Cheap Exclusion, 72 Antitrust L.J. 975 (2005) (recom- mending that government antitrust enforcement focus on conduct that involves little or no investment by or cost to the firm engaging in the conduct and no positive value to society); see also In the Matter of Rambus Inc., FTC Docket No. 9302 (2007), rev’d on other grounds, 522 F.3d 456 (2008); In the Matter of Union Oil Co. of California, FTC Docket No. 9305 (2005) (consent agreement). 61 Brief for the United States as Amicus Curiae at 19, 3M v. LePage’s Inc., 542 U.S. 953 (2004) (No. 02-1865), available at http://www.usdoj.gov/atr/cases/ f203900/203900.pdf. 62 LinkLine Communications, Inc., slip op. at 12. 63 Id., slip op. at 13. 64 Trinko, 540 U.S. at 414. 65 U.S. Dep’t of Justice, Competition and Monopoly: Single Firm Conduct Under Section 2 of the Sherman Act (Sept. 2008), available at http://www.usdoj.gov/atr/public/reports/236681.htm (hereinafter “DOJ Section 2 Report”), Introduction.

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10 0. . For example, with respect to price-based exclusionary conduct (which presumably refers not only to predatory pricing, but also to conditional rebates, bundled discounts and margin squeezes), the Communication states that the Commission normally will intervene only if the conduct has, “or is capable of hampering competition from competitors that a re considered to be as efficient as the dominant undertaking.”66 Despite the ambiguity inherent in terms such as “is capable of” and “hampering” and the question of whose “considered” opinion counts, the “as efficient” criterion at least permits a dominant firm to test the notion of foreclosure using readily available information – its own. The very next paragraph, however, removes whatever comfort even this ambiguous test provides. The Communication goes on to state that the Commission recognizes that “in certain circumstances a less efficient competitor may also exert a constraint which should be taken into account” when considering whether a particular practice is capable of hampering competition.67 Thus, even if a dominant firm is confident that its pricing practices would not be capable of hampering competition from a competitor with a cost structure similar to its own, it must consider the possibility that the Commission might choose to investigate if the firm’s prices may be capable of hampering competition from a less efficient competitor. The dominant company would have no access to the cost structure of that less efficient competitor, and thus no way to determine whether its prices might be deemed to hamper competition from that

• competitor. This exception eliminates any possibility of a

dominant firm being able to conclude with any degree of certainty that its pricing practices will not trigger a Commission investigation under Article 82.

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11 1. . Finally, the Commission’s Communication appears to take surprisingly little consideration of whether effective remedies are available. A key consideration in application of U.S. antitrust law to unilateral conduct has been a determination of how a court might structure a remedy; in the absence of an effective remedy, courts have hesitated to apply the antitrust

• laws. In linkLine, for example, the Supreme Court quoted from

a court of appeals decision regarding the difficulty in setting a remedy with respect to allegations of price or margin squeezes: “[H]ow is a judge or jury to determine a ‘fair price?’ […] How can the court determine this price without examining costs and demands, indeed without acting like a rate-setting regulatory agency, the rate-setting proceedings of which often last for several years?”68 1 12 2. . Likewise, in Trinko, with respect to allegations of refusal to deal, the Supreme Court noted that the interconnection services allegedly withheld by the defendant “a re not

• therwise marketed or available to the public.”69 The trial

court would have been faced with the same problem of having to set the appropriate price at which the services in question were to be provided. In each case the Court declined to find a violation of the antitrust laws where (as the court stated in Trinko) effective remediation would require “continuing supervision of a highly detailed decree.”70 13 3. . The Department of Justice recognized both the importance and the difficulty of achieving an effective remedy in its Section 2 Report. The Department stated, “[w]ithout a proper remedy, winning a judgment of a section 2 violation is similar to winning a battle but losing the war.”71 The Department fully recognized that, “[d]esigning and implementing effective remedies in unilateral conduct cases often is a daunting challenge.”72 Likewise, Commissioner (recently Chairman) Kovacic of the Federal Trade Commission has written, “[r]esponsible prosecutorial practice dictates that government enforcement agencies begin an abuse of dominance case only after they first have defined their remedial aims clearly and devised a convincing strategy for achieving them if the defendant’s liability is established.”73 1 14 4. . The Commission’s Communication, by contrast, contains no discussion of possible remedies. The result is to posit possible enforcement actions that raise more questions than they answer. For example, with respect to refusals to supply, the Communication states, “The Commission does not regard it as necessary for the refused product to have been already traded [for a refusal to supply or margin squeeze to give rise to a potential enforcement action]: it is sufficient that there is demand from potential purchasers and that a potential market for the input at stake can be identified.”74 1 15 5. . Similarly, the Communication announces, “instead of refusing to supply, a dominant undertaking may charge a price for the product” that does not permit an efficient purchaser to

• perate profitably.75 In each case, however, one is left with the
• bvious question: if the Commission orders that a dominant

company supply its rivals in situations where either there have been no prior transactions, or the prior transactions have been at a price the Commission disapproves of, how is the Commission going to determine the price at which the dominant firm is to supply its rivals? The Communication provides no indication that the Commission has contemplated this question, let alone arrived at an answer.

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16 6. . Because of the complexities surrounding unilateral conduct and the risk that dominant firms may be punished for engaging in aggressive competition, the Commission’s initiative to provide guidance in this area is welcome. Nevertheless, from a U.S. perspective, the Commission’s Communication is

• disappointing. It is hoped that in the future, the Commission

may provide additional guidance that reflects an increased focus on conduct that is unlikely to have any benefit for consumers, establishes clearer safe harbors for conduct that is likely to have procompetitive benefits, and recognizes the limits of judicial remedies in this area.

I 66 Communication ¶ 22. 67 Id. ¶ 23. 68 linkLine Communications, slip op. at 14 (quoting Town of Concord v. Boston Edison Co., 915 F.2d 17, 25 (1st Cir. 1990)). 69 Trinko, 540 U.S. at 410. 70 Id. at 415. In Aspen Skiing, by contrast, the Supreme Court upheld liability for a monopolist’s unilateral termination of a long-standing and presumably prof- itable course of dealing with a rival where the evidence indicated that the monopolist refused to supply even at the same price it charged at retail. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985). In that sit- uation, the prior course of dealing and the retail sales of the identical product at issue potentially provided a market basis for determining the terms under which supply should be provided. 71 Section 2 Report, Introduction to Chapter 9. 72 Id. 73 William E. Kovacic, Designing Antitrust Remedies for Dominant Firm Misconduct, 31 Conn. L. Rev. 1285, 1310 (1999). 74 Communication ¶ 78. 75 Id. at ¶ 79.